The short answer. A funding round has its own language: cap table, vesting, SAFE, convertible note, pre-money, dilution, runway, due diligence. This glossary explains 57 terms in one or two sentences each and points you to the guide where each one is covered in depth.
What you'll find
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57 terms in seven groups: the round, valuation, instruments, capital, numbers, review and terms.
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A short, quotable definition of each.
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A link to the guide where it's covered in depth.
If you're preparing your first round, start with the big picture (How to prepare a pre-seed or seed round) and come back here whenever a term you don't know comes up.
Round terms
Funding round. A transaction in which a startup receives money from one or more investors in exchange for equity, or for an instrument that will convert into equity.
Pre-seed. A startup's first outside funding, usually before it has a business that works repeatably. Investors mainly back the team and the first signals. (Pre-seed vs seed)
Seed. The round that funds the move from first signals to demonstrable growth, with customers who pay and come back. (Pre-seed vs seed)
Series A. The first large round with venture capital funds, once the business shows it can grow repeatably.
Bridge round. Smaller funding between two rounds to stretch the cash until a milestone is reached or the next round closes.
Friends and family. Money from founders, friends and family at the earliest stages. It's worth putting it in writing with the same rules as any other investment.
Business angel. Someone who invests their own money in startups, usually in the earliest rounds, and often brings experience and contacts too. (What business angels look at)
Angel network. An organized group of business angels who share deals, the review work and sometimes a lead for each investment.
Venture capital fund. A vehicle that invests other people's money in high-growth startups, with a formal decision process.
Lead investor. The investor who takes the largest part of the round or negotiates its terms, and whom the others usually follow. (The questions investors ask)
Co-investment (syndication). Several investors investing in the same round, sharing the amount, the review and the risk.
Check size (ticket). The amount a given investor puts into a round.
Investment thesis. An investor's criteria for what they invest in: sector, stage, geography and check size. A "no" on thesis says nothing about your startup. (After an investor says no)
Pitch deck. A short presentation of the startup for investors: problem, solution, market, traction, team, numbers and the ask.
Use of funds. An explanation of what the round's money will be spent on and which milestones it will make possible. (How much to raise)
Milestone. A measurable result the startup commits to reaching, such as a number of customers, a revenue level or a certification.
Valuation terms
Pre-money valuation. What the company is worth before it receives the round's money. (How much to raise)
Post-money valuation. What the company is worth after the round: the pre-money valuation plus the money coming in.
Dilution. The share of the company that existing shareholders give up when new investors come in. In a simple round with no convertibles, it's the round amount divided by the post-money valuation. (How much to raise)
Down round. A round at a lower valuation than the previous one.
Valuation cap. The maximum valuation at which a convertible loan or a SAFE converts into equity, even if the next round is priced higher.
Discount. A reduction on the next round's price at which a convertible instrument converts, as a reward for the risk of coming in earlier.
Instrument terms
Capital increase. A transaction in which the company creates new shares that investors take up in exchange for their contribution. In Spain it's formalized before a notary and registered in the Commercial Registry (Registro Mercantil); in an SL, investors take up the new shares (asunción), and in an SA they subscribe for them (suscripción).
Convertible note (convertible loan). A loan that, instead of being repaid, converts into equity in the next round, often with a valuation cap or a discount. (How much to raise)
SAFE. An agreement giving the investor the right to receive equity in a future round, without being a loan. It's common in the US; in Spain it's used less and needs legal adaptation.
Participating loan (préstamo participativo). A loan whose interest depends partly on how the company performs. In Spain it ranks behind other creditors and counts as equity for capital reduction and dissolution purposes. It's common in public funding, for example from ENISA.
Non-dilutive funding. Money that doesn't require giving up equity: loans, grants or public aid. (Runway and burn rate)
Tranched round. A round in which the money arrives in several parts, each tied to a milestone.
Capital and shareholder terms
Cap table (capitalization table). The document showing who owns what share of the company, before and after each round. (Pre-seed and seed data room)
Shareholder register (libro registro de socios). A mandatory register in a Spanish limited company (SL) recording who holds the shares and every change. The cap table must match it.
Shareholders' agreement. An agreement between shareholders governing decisions, shareholders joining and leaving, the sale of the company and other rights. In Spain it's a private agreement: it binds those who sign it but can't be enforced against the company unless its clauses are written into the bylaws.
Vesting. A mechanism by which a shareholder earns their stake gradually over time, so that if they leave early they don't walk away with all of it. In Spain the founder owns the shares from day one, so vesting is set out in the shareholders' agreement: if someone leaves early, the others or the company can buy back the unvested part at an agreed price (good leaver and bad leaver clauses).
Cliff. The initial vesting period before which nothing vests.
Incentive plan (stock options, phantom shares). A scheme that lets employees and key collaborators share in the company's value. Phantom shares don't give real equity: they give the right to a payment linked to the company's value.
Beneficial owner. The individual or individuals who directly or indirectly own or control more than 25% of the capital or voting rights, or control the company by other means; if there are none, the directors are treated as such. In Spain it's declared when filing the annual accounts. (Pre-seed and seed data room)
Metrics
Burn rate. The cash a startup consumes each month. Gross burn is everything it spends; net burn is what it loses: spend minus cash collected. (Runway and burn rate)
Runway. The number of months a startup can keep operating with its current cash at the current net burn. Calculated as available cash divided by net burn. (Runway and burn rate)
Default alive / default dead. Whether, at current spend and growth, a startup would reach profitability before running out of cash (alive) or not (dead). An idea popularized by Paul Graham in 2015.
Traction. Proof that the market is responding: paying customers, repeat usage, growing revenue.
Monthly recurring revenue (MRR). Revenue that repeats every month, typical of subscription businesses.
Customer acquisition cost (CAC). What it costs to win a new customer: marketing and sales spend divided by new customers. (Measuring your startup's progress)
Customer lifetime value (LTV). What a customer brings in over their whole relationship with the company, after the cost of serving them.
Retention and cohorts. Retention measures how many customers keep buying or using the product over time. A cohort is a group of customers who started in the same period, and tracking it shows whether you retain better or worse than before. (Measuring your startup's progress)
Product-market fit. The point at which a product meets real demand so that customers buy it, use it and recommend it without a disproportionate sales effort.
Reachable market. The part of the total market the startup can actually reach, through its channels and within a reasonable time.
Due diligence
Due diligence. The review an investor carries out before investing to check that what they've been told is true and that there are no hidden problems. (Due diligence for business angels)
Data room. The organized set of documents a startup makes available so the investor can check what they've been told. (Pre-seed and seed data room)
Non-disclosure agreement (NDA). A contract in which the recipient of information agrees not to disclose it. Many investors won't sign one just to see a first deck. (Pre-seed and seed data room)
Investment memo. A short document in which the investor writes down why they're investing, the risks and what they expect to happen. (Due diligence for business angels)
Deal terms
Term sheet. A document summarizing the main terms of the investment before the final contracts. It's usually non-binding, except for confidentiality and exclusivity.
Liquidation preference. The right of certain investors to be paid before everyone else if the company is sold or wound up.
Anti-dilution. A clause that adjusts an investor's stake or price if a later round is done at a lower valuation.
Pre-emption right. The statutory right of shareholders to take up new shares in proportion to their existing holding when a capital increase is made with cash contributions. In Spain the general meeting can exclude it in certain cases.
Tag-along. The right of a shareholder to join a sale by another shareholder, usually the majority, on the same terms.
Drag-along. The right of a majority to require the other shareholders to sell, on the same terms, if an offer arrives for the whole company. The majority needed is set in the shareholders' agreement.
Information rights. The startup's commitment to send investors figures and updates on an agreed schedule.
Exit. The moment when investors get their money back, usually through the sale of the company or of their shares.
Tip Knowing a term doesn't mean you understand how it affects you. Before signing any terms, ask a lawyer who has done funding rounds to explain what each clause means in your specific case.
Do it with a method Knowing the language of the round is step one; knowing where your startup stands is step two. The Startup Index Score evaluation gives you your level from 1 to 5 and your first three priorities, free, in 30–40 minutes. (Start the evaluation)
Frequently asked questions
What is a startup's cap table? The capitalization table, or cap table, is the document showing who owns what share of the company, before and after each round. It's one of the first things an investor checks, and in a Spanish limited company it must match the deeds and the shareholder register.
What is vesting? It's a mechanism by which a shareholder earns their stake gradually over time, often after an initial period called the cliff. If they leave early, they don't walk away with all of it. In Spain it's set out in the shareholders' agreement, and it protects the other founders and the investors.
What's the difference between a SAFE and a convertible note? Both convert into equity in a future round, usually with a valuation cap or a discount. A convertible note is a loan, with interest and a maturity date; a SAFE isn't. SAFEs are common in the US and used less in Spain, where they need legal adaptation.
What's the difference between pre-money and post-money valuation? Pre-money is what the company is worth before the round; post-money is what it's worth afterwards, including the money coming in. In a simple round, the share the new investors get is the round amount divided by the post-money valuation.
What is a startup's runway? It's the number of months a startup can keep operating with the cash it has at its current net burn. You calculate it by dividing available cash by monthly net burn. Before a round, it should cover the time it takes to close it plus a margin.
Keep reading
Sources
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Paul Graham, "Default Alive or Default Dead?" (2015): paulgraham.com/aord.html
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The rest of the definitions reflect common usage in pre-seed and seed rounds, with Spanish legal specifics noted where relevant.
About the author
Jordi Gil is the creator of Startup Index Score. He has spent almost 30 years developing projects and working with startups across the Americas, Europe and Asia. (Meet Jordi Gil)